When the Fed Reacts to a Positive Aggregate Demand Shock

question 70

Multiple Choice

When the Fed reacts to a positive aggregate demand shock, which of the following is likely to make the period of disinflation shorter? I. credibility on the part of the Fed II. higher uncertainty about investment returns III. greater nominal wage flexibility

• A) I and II only
• B) II and III only
• C) I and III only
• D) I, II, and III

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Definitions:

Budget Constraint

The limitations on the consumption choices of an individual or household as a result of limited income and finite prices of goods and services.

CDs

Compact Discs, a digital optical disc data storage format that was widely used for storing music and other data.

Income

The financial gain received by an individual or entity, typically through wages, investments, or other sources, over a specific period of time.

Budget Constraint

A budget constraint represents the limitations on the spending choices of an individual or organization, determined by their income and the prices of goods and services.